Log Home Financing

One of the most critical factors in building your log home is how you're going to finance it. There's a lot of things to consider when financing your log home and since you may be paying your mortgage payment for a long time, it's good to know where you stand before you go too far in the planning stage of your new house.

Most lenders will be more than happy to talk to your about financing your log home. I say most because you may find that not every mortgage company is willing to finance a log home or cabin due to their unique issues. But, nowadays, more and more lenders are willing to offer this service to you.

For the longest time, of course, there was no concept of “financing” a log home. You either built it yourself, or got help from friends and neighbors – and you didn’t buy any materials, fixings or tools unless you had the cash to pay for them.

Then came the period when the typical log home was a small cabin used at weekends and for vacations. The relative novelty, remote locations and difficulty in making value comparisons meant they were often difficult to finance, but the sums involved were usually quite small and cash purchase was still common.

Today, something like 90% of the log homes built are designed to be primary residences, and almost all of them are built in or around metropolitan areas. Along with this, log homes are being resold more than ever before; creating a whole marketplace that is of interest to realtors, banks and insurance companies.

This trend toward the mainstream has changed the finance picture greatly and today it is much more straightforward to mortgage and insure a log home.

A good example of this change is the way in which Fannie Mae adjusted their comparable appraisals requirement for log homes. The original policy called for three comparables within the preceding six months, but under pressure from the Log Home Council, the company recognized the impracticality of this policy. Fannie Mae now accepts appraisals based on three other types of specialty homes in a reasonably competitive market.

Developments like this new directive have been instrumental in ensuring the market’s ability to accept non-traditional types of houses – today you will even find companies who finance nothing but log homes!

According to the Log Home Council, the majority of financing problems experienced by log home buyers are the same as those experienced by other buyers (budget, affordability and so on) and are not specific to the type of dwelling. However, you may still find some mortgage bankers who either will not accept applications for log homes or will only accept them on punitive rates.

This is usually because either they are not familiar with the market, or they don’t understand Fannie Mae’s new directive. In practice, all this means is that you should shop around to find the best financing deal for your circumstances – which is exactly the same advice you would get for a conventional home purchase.

While financing the purchase of a ready-built log home may increasingly be the same as financing any other home purchase, financing the building of a new log home is a little different.

Fortunately there are many companies now specializing in this kind of finance, and your potential supplier, builder and realtor can probably all point you in the direction of finance options they have good experience of.

Certainly, the log home building trade bodies maintain detailed listings of the finance options available to new builders.

The first obvious difference is the release and phasing of funds during the construction of your log home. Conventional lenders may be unwilling to see anything but a pile of logs until the house is complete, while specialist finance will release initial funds to pay your deposit on materials or kit. 

Then additional funds may be released in stages to track the construction progress and stage payments – the advantage of this being that you are not paying interest on the full amount for any longer than absolutely necessary.

An alternative is to get separate construction and permanent financing, where you borrow smaller sums for shorter periods of time to fund the building of your home, and then get long term finance that repays the construction loan secured on the value of the finished house.

This does open up the number of lenders competing for your permanent finance as many more are willing to lend on a completed project than are willing to lend on materials and a set of plans.

Specialist construction loans tend to be more flexible than trying to apply permanent financing to the construction phase. For example, it’s common for an owner builder to draw a hundred or more separate amounts on their loan, allowing them to pay sub contractors and materials suppliers as required and minimizing interest payments.

If you already own the plot you intend to build on, and already have equity in that land, specialist financers will allow you to use that equity as a down payment.

Although fewer log homes are being built today on long-established family plots, many people do buy their land some time before they are ready to build on it, so this can be a useful facility in a rising land market.

If you plan to be your own general contractor, this will reduce the number of lenders willing to do business with you as most consider the risks of overspend and non-completion to be too high.

Again, specialist log home finance companies are more likely to entertain this, but will probably insist they are involved in checking over your budget and schedule – and may even have in-house consultants to help you in carrying out this difficult role.

This can certainly give you the best of both worlds – direct, hands-on personal responsibility for the management of your build, but with a motivated expert ready to back you up when you need it.

As the market for log home financing grows and matures, borrowers should no longer feel that they are at the mercy of a few finance companies that grudgingly agree to take them on.

Instead, you can feel increasingly confident that you can shop around for finance on a new home that is built using tried and tested methods and which can be demonstrated to have excellent resale value.

In this context, financing a log home is much like financing any home, and you should be prepared to have your application assessed in an increasingly standardized manner.

Learn about maintaining your home by going to log home maintenance.